Consumers have unprecedented opportunity to be active shapers of the products and services they buy and use, rather than passive receivers, taking whatever companies provide. Apples most recent litmus test on corporate social responsibility with its key Chinese supply chain manufacturing partner, Foxconn, and resulting consumer outcry is but just one example of the power that consumers have to sway products manufacturers to alter their business patterns.

At the recent World Economic Forum (WEF) in Davos, Aron Cramer (CEO and President of Business for Social Responsibility or BSR) observed at one workshop the “fast-changing relationship between businesses and consumers. The question on the minds of many of the business executives in the room was “is this good or bad for business”. The answer to this particular either/or question is undoubtedly both. Companies that stay ahead of this curve by involving consumers in product design; providing transparent information about the social and environmental content of these products, and looking at new models to provide value in new ways will prosper. Those that don’t will find growth hard to come by.”

Scaling Consumption in a Smart and Sustainable Way

The WEF has devoted a great deal of attention to the issue of scaling consumption sustainably as the world economy shifts both demographically and economically. WEF examines these issues in a report entitled: More with Less: Scaling Sustainable Consumption and Resource Efficiency.The study properly takes a “systems view” of sustainable consumption. In other words, rather than focusing just on the demand side, WEF looks at the challenges and possible solutions through a value-chain centric lens of what they describe as:

consumer engagement (demand)

value chains and upstream action (supply)

policies and an enabling environment to accelerate change (rules of the game).

“Making your business sustainable in today’s world is an absolute imperative. The business case for sustainable growth is clearer than ever and the urgency of the issues we face means that business leaders have no choice but to act. ” Paul Polman. Chief Executive Officer, Unilever

As WEF explains, “The main outcome is the identification of key focus areas for business leadership through concrete goals and collaboration across industries”. For this report, WEF engaged with chief executive officers, business leaders and experts worldwide, seeking answers and thoughts centered six key questions:

What are the key trends in sustainable consumption?

What is the size of the opportunity for countries, companies and consumers?

What are the barriers to scaling existing models of sustainable consumption?

What does getting to scale look like?

What new solutions are needed to get to scale in sustainable consumption?

How can we achieve scale by working collectively and creating action on new fronts?

Barriers, Mind Sets and Complexities- Oh My!

To no surprise, the report identified a number of internal and external barriers to staving and influencing scalable and sustainable consumption, notably (according to the report):

Consumers lack incentives for sustainable consumption and are confused by mixed messages. The study noted that one survey of British consumers indicated that 70% were uncertain about the environmental performance of the products they buy. I have seen similar surveys here in the United States that compare with the British results

Supply chains are complex, opaque and interconnected. Deep supply chains, like Apples or the textile industry, create many complexities that place limits to in certainties sustainable sourcing

Technology remains costly and inadequately deployed. The study notes that “Fewer than 20 facilities in the world are certified to melt down and recycle the cathode ray tubes of old television sets, and all are in Asia. E-waste, which at present largely originates in the US and Europe will travel across multiple countries and continents for recycling – putting the environmental benefits into question and causing additional social concerns”. That being said, more collaborative enterprises across industries and economies can replace the linear economies that characterize western industrial nations, and create more opportunities to expand technologies further and wider.

Policy incentives remain weak. The report notes that “trade systems and tariffs rarely differentiate between unsustainable and more sustainable alternatives, preventing a potential increase of 7–13% in the traded volumes of sustainable products

Short-termism dominates the landscape, and traction in fast-growing markets remains low. Typical of capitalism and free enterprise, most companies growth targets rarely look out father than a few years, and seek short term gains to keep shareholders happy. The WEF report noted that “55% of FTSE 100 company sustainability targets were to be achieved within 1–2 year timeframes, while only 18% looked out to 2018–2020”.

The graphic below suggests some strategies in the report to overcome these barriers along the three key value-chain points as described above.

Solutions for Scaling Economies (Source, WEF, 2012)

Moving Toward a Circular Economy

Something else also happened “on the way to the Forum” (well actually at the Forum) that may offer some insights and solutions that are discussed in the WEF report. At Davos, Ellen MacArthur, head of the non-profit Ellen MacArthur Foundation, suggested that while” rapid technological evolution across all major industry sectors,{was taking place] … very little change within the economic model itself {has been occurring]. The economy is still based on a linear “take, make and dispose” model.” A new report Towards the Circular Economy, analyzes the international business case behind the idea of shifting from a linear to a more circular economy.

“The essence of the circular economy lies in designing goods using technical materials to facilitate disassembly and re-use, and structuring business models so manufacturers can reap rewards from collecting and refurbishing, remanufacturing, or redistributing products they make. In this model all things are made to be made again, ultimately using energy from renewable sources[and in a less toxic manner]. Companies shift to focusing on selling performance in the place of product, and consumers now become users.” – Ellen MacArthur

Make sense? Well if Ms. MacArthurs numbers are correct, “embracing the circular economy model could lead to an annual economic opportunity of up to $630bn a year towards 2025.” Where do I sign up!!?? Still interested? Read more about the circular economy, ways to leverage the entire supply chain and build sustainable, scalable consumption here and view a fascinating video here. .

As Aron Cramer mentioned in a GreenBiz article in January, the time for sustainable consumption is now. “The need to develop new consumption patterns is the mother of all innovation challenges. The race to dematerialize is on. Some of this will come from the digital revolution, as newspapers can now be delivered wirelessly to e-readers instead of plopping dead trees on the doorstep. But some of the innovation will come from redesigning business models.” Perhaps Mr. Cramer and Ms. MacArthur are onto something.

Are you, as consumer, as manufacturer, product designer or corporate executive, or even as fellow Planet-eer, ready to help make that change? We can change the rules of the game together, for a stronger, more circular economy. As Captain Planet says, “The Power is Yours”.

Six months before that (nearly a year ago), I presented my thoughts about the IPEs report that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers. The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”. Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

Many people have asked me over the past half-year why Apple is being uncooperative or secretive. Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem as I saw it then (and this thought has now been vindicated) is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy. I also suggested that Apples supplier network may be too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight. Combined with inconsistent Chinese regulatory agency oversight on its industrial manufacturers, this presented difficult challenges to a workable, and meaningful sustainable supply chain solution. But Nike did it, so why couldn’t (or wouldn’t) Apple, I asked?

My advice last September to Apple and new CEO Tim Cook was to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products. My exact words were: “show humility, take responsibility, and act swiftly and collaboratively.”

Gladly I am happy to report that Apple has wised up and stepped voluntarily under the glare of public scrutiny.

2012: Enter Mr. Cook…the New, Improved, Socially Responsible Apple?

"Good Apple"

In its Supplier Responsibility 2012 Progress Report, the company states it is “committed to driving the highest standards for social responsibility throughout [its] supply base”. It adds: “We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”

The 156 companies it lists alongside the report on its Supplier Responsibility website account from more than 97 per cent of what Apple pays to suppliers to manufacture its products. A complete picture of all the thousands of suppliers in Apples supply chain may be daunting, but at least the company has captured the suppliers where the “greatest spend” is.

In 2011, we conducted 229 audits throughout our supply chain — an 80 percent increase over 2010 — including more than 100 first-time audits. We continue to expand our program to reach deeper into our supply base, and this year we added more detailed and specialized audits that focus on safety and the environment.

Apple-designed training programs have educated more than one million supply chain employees about local laws, their rights as workers, occupational health and safety, and Apple’s Supplier Code of Conduct.

Our audits have always checked for compliance with environmental standards. In 2011, in addition to our standard audits, we launched a specialized auditing program to address environmental concerns about certain suppliers in China. Third-party environmental engineering experts worked with our team to conduct detailed audits at 14 facilities. We uncovered some violations and worked with our suppliers to correct the issues. We will expand our environmental auditing program in the coming year. [violations unearthed included dumping wastewater onto a neighboring farm, using machines without safeguards, testing workers for pregnancy and falsifying pay records]

We have a zero-tolerance policy for underage labor, and we believe our system is the toughest in the electronics industry. In 2011, we broadened our age verification program and saw dramatic improvements in hiring practices by our suppliers. Cases of underage labor were down significantly, and our audits found no underage workers at our final assembly suppliers. [Apple said it found six active and 13 historical cases of underage labor at some component suppliers, but none at its final-assembly partners]

We offer continuing education opportunities at our suppliers’ facilities free of charge. More than 60,000 workers have enrolled in classes to study business and entrepreneurship, improve their computer skills, or learn English. And the curriculum continues to expand. We’ve also partnered with some local universities to offer courses that employees can apply toward an associate degree.

Apple has vowed to deal with worker abuses, hoping to deflect criticism it was turning a blind eye to cases of poor working conditions in a mostly Asian supply chain. Perhaps in a huge move, Apple will allow independent auditors from the Fair Labor Association to also be part of the future auditing process. In an interview last Friday, Mr. Cook said Apple’s vow to double the number of supplier audits along its supply chain is “raising the bar” for the entire high technology industry, and that more change is on the way. Cook said “All of this means that workers will be treated better and better with each passing year…It’s not something we feel like we have done what we can do, much remains to be done.”

The San Jose (California) Mercury News quoted analyst Ken Dulaney with Gartner Research who wondered why this may have taken so long to happen. “Who knows why they didn’t do this sooner? It could have been because of Steve Jobs. Maybe with Cook’s financial background he’s trying to move Apple toward less secrecy, which would be a very good thing. It’s part of their trying to be a good global citizen.”

Under Scrutiny

Either way, Apple will continue to be under watchful eyes, as environmentalist and labor activists continue to push for more reforms by American companies doing business overseas. Apple still will need to double down its efforts to respond more proactively to the many environmental impact related issues reported in the past by its major suppliers, especially in China. But for a company that has played its cards extremely close to the chest, it’s a major breakthrough, if time proves the intent to be true.

Judy Gearhart, executive director of the International Labor Rights Forum in Washington, D.C, said that how the industry as a whole responds” depends how engaged they [Apple] are going forward. You see companies make these commitments and there’s often a lot of fanfare, but it doesn’t always pan out the way they say it will.”

Maybe Mr. Cook is the one “Good Apple” that will save the bunch. Let’s hope so.

Feeling a bit like the holidays for sure. And I feel like humanity just got “scrooged”. A year ago, I wrote about the COP16 U.N. Climate Conference in Mexico City and how governments were playing “kick the can” with climate policy. I noted that there was “some progress on establishing more robust means to appropriate and distribute micro-finance funds to support development of technologies in developing countries that lack the dollars themselves to manage their own greenhouse gas footprints.” I also noted that many companies, rather than countries were taking unilateral initiatives to reach deep into their supply chain to develop innovative, new products that are less impacting to the environment and that can help developing-nations likely to be hit hard by global warming.

Based on what has (or has not) transpired at the recently wrapped up COP17/CMP5 in Durban the past two weeks, I am left feeling that global consensus on this issue, while not completely out of the question, is getting closer. But the incremental, baby step pace of progress is (according to most climate scientists) insufficient to avert seemingly unstoppable rise in year over year average global temperatures. It’s not the science that appears in question, rather it appears that there appears to be ongoing hesitancy to bear accountability and resolute responsibility on the part of those who carry or deny the mantle of developed nation status (hint: United States, China, India). Despite the last minute efforts of the 194 nations in attendance and working past the official end of the conference, hopes for a meaningful and comprehensive global agreement appeared to be faltering.

As an example, the recent article in the Guardian stated that “The EU has found it hard to push through its “roadmap” that would establish an overarching, legal agreement committing all countries to emission cuts”. So, the EU got what it wanted. Also, according to an African delegate, “The US has what it wants. There is no guarantee that the new agreement will legally bind governments to cut emissions.” The U.S. indeed got what it wanted. China and India continue to maintain they are still too undeveloped on the whole to be accountable in the same manner as western, industrialized nations and also claims they are implementing what they have already pledged to do at prior UN conferences. Um…show me.

The one big victory I did hear that came out of the past two weeks was on an agreement on establishing a $100 billion/year climate fund to help developing countries address climate change. But before we celebrate that breakthrough, there’s a small outstanding issue …there is no clear mechanism for how that money will be raised. In the recent words of GOP candidate Gov. Rick Perry… “Oops”. In addition, rich countries would be allowed to offset their emissions by making payments to poor countries which protected their forests. Is this a bilateral effort or are poorer counties expected to bear 100% of the burden of making that happen. What is thought to be enough isn’t. Tim Gore, policy adviser for Oxfam, stated “Governments must really get to grips with the climate crisis.” That’s an understatement if I ever heard one. Gore summed up his take on the winners, losers and likely impact on the poorer nations here.

So, while COP17 by most measures succeeded where prior UN gatherings failed, the agreements on which progress will be measured (using the 2015 and 2020 yardsticks established at Durban) may not be swift enough to stem the slow bleed that climate change is bringing on around the world.

Supply Chain Sector Gets Some Attention

Going into the climate conference, two key supply chain sectors, aviation and shipping, were targeted for discussion. According to the Civil Air Services Navigation Organization, “After a number of days of tough negotiations on aviation, there was still no decision on some of the key aspects of Common But Differentiated Responsibilities (CBDR) and how they relate to aviation and shipping, and the ability for countries negotiation under the UNFCCC to tell negotiators at ICAO what to do.

In the final agreed Durban Platform text on aviation, there was a brief placeholder text: “International aviation and maritime transport… Agrees to continue its consideration of issues related to addressing emissions from international aviation and maritime transport;”

Basically, there was no agreement was reached …end of story. That being said, I have written countless posts on the administrative and technological advances underway by large intermodal shippers and transporters and the aviation industry to quell fuel use and has been exploring how to develop sustainable aviation biofuels, including in developing countries to meet the Climate Fund goals established in Durban. Aviation and transportation stakeholders have concluded that “agreement amongst nearly all countries [is] that [International Civil Aviation Organization] ICAO is the most appropriate place to deal with aviation emissions. The industry will continue to engage with ICAO to ensure that an ambitious work program can deliver an outcome on aviation emissions by the next ICAO Assembly in 2013”.

Writer and author Marc Gunther summed up the positive and negative spins on the Durban conference, and suggested that perhaps the evolution of climate negotiations will transcend universal treaties, relying more on regional, collaborative agreements and technological advances as the primary means of progress. Gunther nails the takeaways by suggesting that “First, those companies that worry about climate change need to bring their voices more forcefully to the policy arena; they can’t assume that governments are on the right track. Second, companies ought to prepare for climate change–when they site new facilities, for example–because it’s unavoidable.”

The Durban Platforms emphasis on more dialogue, more planning and lack of clear immediate is tragic. Not for the planet. No sane person can look me in the eye and say with a straight face that seven billion people, with all their wants and needs, have not affected the global ecosystem. But despite all the perversities and ravages that we’ve inflicted on Earth, the planet will survive. But for us, the larger mass of humanity, we hold our own fate in our hands …and we are blowing it. Why? Because there are nations (the EU, United States, China and India among them) that cannot…or will not…move past their “self interest”. They are just kicking the can down the road.

The Tragedy of the Commons

In 1968, ecologist Garrett Harding published “The Tragedy of the Commons in the journal Science. I was introduced to Hardin’s theory many times during my undergraduate and graduate environmental law studies. His highly controversial and criticized theory presented a hypothetical situation involving herders sharing a common parcel of land, on which they are each entitled to let their cows graze. Hardin theorized that it was in each herder’s “self interest” to put more cows onto the land, even if the quality of the common is damaged for all (through overgrazing). The herder receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group. Further if all herders make the same choice, the common will be depleted or even destroyed, to the detriment of all. Systems ecologists called this an exceedance of “carrying capacity” resulting in other tragedies likie overfishing, depletion of forest resources, water supplies and arable land. And while the acts of an individual or one corporation may singularly have little impact, the cumulative effect can be overwhelming and often leave irreversible impacts.

Hardin’s theories have been widely criticized from an economic point of view. Political scientist Elinor Ostrom, the first woman to win the Nobel Prize for Economics (2009), showed that the “Tragedy of the Commons” (its overuse and destruction) doesn’t happen, at least when all the people who share the commons can get together and talk about it. Ostrom found that, when there are no internal or external forces preventing the “commoners” from a free, open and robust discussion of how they should agree to govern and limit their use of it so it doesn’t get overgrazed and thus ruined for all, then the commons goes on thriving.

And that, dear friends and readers is the tragedy of the Climate Conference in Durban…the political process and governmental self interest appeared once again come up short, co-opting the outcomes “to the detriment of all”. As noted in a National Public Radio broadcast in 2009, “Every nation wants to act in its own interest but that may not be the same as the global interest.”

Innovation, Technology and a Collective Conscience

I believe now, as I believed and wrote about during COP16 in Mexico City and after COP15 in “Nope”nhagen that governments were putting off today what we can technologically achieve now. What happened? Has humanity lost its mojo…or is something else going on?

In a fascinating article by venture capitalist Roland Van Der Meer, Holding Off the Tragedy of the Commons, he describes some of the underlying factors that he believes have contributed to the global decline in natural resources, and lack of environmental stewardship…and it comes down to innovation.

Both governments and corporations are institutions that exist for the reason of self promulgation, actualization, and advancement (to further itself, to continue to exist, to not change). The methodologies that they deploy and back is their best practice, it is what they believe, what they will hold on to and how they will exist and thrive. And this is the failure point. It is not meant to change. Its very survival depends upon the lack of change.

What is missing is a catalyst for change. Why change? Because what worked best 100, 50, 20 or even 10 years ago is no longer the best methodology or practice.

The institution is good at doing what it was designed to do and it stubbornly holds on to that design at the expense of its own destruction or the method it protects. Change is needed.

The incumbent companies and regulations are stuck in a process and framework which prevents and disincentivizes change. They even go further to lock out or block change because it would lead to their own destruction…. it is our collective resources that are at stake. We need to be open and create the new enterprises that will create, invent and adapt in the basic resources areas.

I believe, as do organizations like the Responding to Climate Change (RTCC) that the private sector can “pick up the slack” in tackling climate change where government agreements have (up to this point) failed. However, to effectively incentivize innovative technologies, the private sector must continue to be a part of the larger policy debate. There is a way out of the mess we have made and one of my personal life influencers, Amory Lovins, has a plan. In his new book, Reinventing Fire- Bold Business Solutions for the New Energy Era offers “actionable solutions for four energy-intensive sectors of the economy: transportation, buildings, industry, and electricity”. The Rocky Mountain Institutes Lovins states “business can become more competitive, profitable, and resilient by leading the transformation from fossil fuels to efficiency and renewables. This transition will build a stronger economy, a more secure nation, and a healthier environment.” Imagine if this approach can be applied at a global level, with a combination of government/business and monitored, measurable multi-national collaboration and a collective common conscience. What have we got to lose?

When it comes to real action on climate change, the upside of heretical innovation is huge…and the downside unthinkable.

Here we go again. Six months ago, I presented my thoughts about a report by Chinese NGO Institute of Public and Environmental Affairs (IPE) that leveled complaints against the IT/Electronics industry and the overall performance of nearly 30 major manufacturers and their respective key parts suppliers. The report focused on “the openness of IT firms and their responsiveness to reports of environmental violations at suppliers”. Concerns were raised in the report regarding levels of environmental toxins and pollutants being discharged in rivers and streams and into air sheds.

Worker complaints about unsafe working conditions and acute health problems were presented. The IPE gave opportunities to every company referenced in the report to initiate an open and two-way dialogue, and most did …except Apple Electronics. According to the report, Apple was more secretive about its supply chain than almost every other American company operating in the China. Apple came up among the laggards among 29 major electronics and IT firms in a transparency study drawn up by a coalition of China’s leading environmental groups.

These are the iPad and iPod guys for crying out loud! The evolutionary wizards who have shaped and fundamentally changed the way that most consumers behave, work, interact and get on with their daily lives. Those guys who at one point this summer became the wealthiest company in the United States…this before iconic CEO Steve Jobs retired.

Apple- Skinned Again

Following the early 2011 report, the IPE performed five more months of research and field investigations and reported that “the pollution discharge from this enormous industrial empire has been expanding and spreading throughout its supply chain, seriously encroaching on the local communities and their environment… the volume of hazardous waste produced by suspected Apple Inc. suppliers was especially large and some had failed to properly dispose of their hazardous waste.”

The IPE reported (rather colorfully I might add) that 27 suspected suppliers to Apple had known environmental problems. The IPE noted that in Apples ‘2011 Supplier Responsibility Report’, “where core violations were discovered from the 36 audits, not a single violation was based on environmental pollution. The public has no way of knowing if Apple is even aware of these problems. Again, the public has no way of knowing if Apple has pushed their suppliers to resolve these issues. Therefore, despite Apple’s seemingly rigorous audits, pollution is still expanding and spreading along with the supply chain.”

IPE reported that “during the past year and four months, a group of NGOs made attempts to push Apple along with 28 other IT brands to face these problems and the methods with which they may be resolved. Of these 29 brands, many recognised the seriousness of the pollution problem within the IT industry, with Siemens, Vodafone, Alcatel, Philips and Nokia being amongst the first batch of brands to start utilizing the publicly available information. These companies then began to overcome the spread of pollution created by global production and sourcing, and thus turn their sourcing power into a driving force for China’s pollution control. However, Apple has become a special case. Even when faced with specific allegations regarding its suppliers, the company refuses to provide answers and continues to state that “it is our long-term policy not to disclose supplier information.”

The IPE offered its opinion that “Apple has already made a choice; to stand on the wrong side, to take advantage of the loopholes in developing countries’ environmental management systems, and to be closely associated with polluting factories.”

IPE concluded that Apple needed to own up and be accountable for its supply chain for the following four reasons:

“… any company that produces a large amount of hardware must bear the responsibility for the environmental and social costs incurred during the manufacturing process.

Secondly, the suppliers who violate the standards for levels of pollutants emitted and who ignore environmental concerns and workers’ health do these things with the aim of cutting costs and maximizing profits.

Thirdly, Apple Inc. understands that when passing the blame for social responsibility it can be difficult to pull the wool over the eyes of the general public…; and

Fourthly, many people do not understand that Apple and other brands’ outsourcing of production is not the same as ordinary purchasing behavior. Various sources of information show that Apple is deeply involved in supply chain management—from the choice of materials to use to the control of clean rooms in the production process.”

So What’s Wrong With Apple?

Apples image problem appears to be getting worse before it gets better and it may be more than just a public relations problem; and it’s not just in China that Apple is facing criticisms. Apple, like most consumer electronics manufacturers is a major user of highly sought after precious minerals, many of them associated with conflict areas (so-called ‘conflict minerals’). Apple in fact sources tin from 125 suppliers that use 43 smelters worldwide. That’s an awful big challenge from a supply chain management perspective. But Apple was still a bit slow to step up like other key IT companies like Dell and Intel and collaborate with the Electronics Industry Citizenship Coalition in developing a framework to address conflict mineral traceability.

Further complicating the issue is the sheer size of Apples supply chain and the general difficulty that comes in managing dispersed multi-tired supply chains in other countries. In an excellent piece published in GreenBiz this week, Environmental Defense Fund Project Manager Andrew Hutson suggested that “If you’ve got an office in Shenzhen or Hong Kong, it’s very hard to keep tabs on the perhaps thousands of factories you have across China in any given moment”. The article went on to discuss how scrutiny can sometimes lead contractors to move factories to more remote areas, farther away from watchdogs, suggesting that “the sheer distance from headquarters created by chasing low-cost labor to developing countries can effectively reduce accountability”. While cheap labor in far off lands certainly has its benefits, clearly it has its disadvantages and Apple is paying the price.

Many people have asked me over the past half-year why Apple is being uncooperative or secretive. Well, “secrecy” has always been part of the Apple mystique, but of course so has evolutionary and disruptive innovation. The problem is when it comes to corporate social responsibility and sustainability, transparency is the name of the game, not secrecy. In this “WikiLeaks” world of ours, mystique only gets companies mired deeper into areas of suspicion and distrust.

Photo via Michael Holden under Flikr CC License

But perhaps there is more to the issue to noodle on. Is it entirely possible that Apple isn’t ignoring the problem, but rather its supplier network is just too big to handle and they lack the tools, systems and technologies to perform adequate supplier training and oversight? Or is it that Chinese regulatory agencies also lack the resources or institutional oversight necessary to monitor compliance over in-country industrial manufacturers that service multiple consumer brands? Or is it possible that as consumers our insatiable appetite for Apple products is partly responsible for creating such high demand that Apple must reach out to hundreds if not thousands of suppliers to fulfill its orders and keep Apple product lovers happy? Or is the problem a combination of rampant, unsustainable consumerism, poor regulatory oversight, a supply chain ‘gone wild’, AND a deviated moral center on the part of Apple (as the IPE suggests). You see, its complicated and maybe, just maybe, we should all take a close look in the mirror and question our own culpability in this mess.

For any of my dedicated readers, I am by no means being an apologist for Apple. You all know where I have stood in the past by constructively calling for Apple to step up and be as evolutionary on corporate social responsibility and sustainability matters as it is with its products. I noted in my prior post the many key steps that Apple can and must take to effectively make a difference in its supply chain. In addition Treehugger writer extraordinaire Jaymi Heimbuch offered some outstanding advice to new CEO Tim Cook, not the least of which was “requiring transparency in the supply chain and being more direct with suppliers about standards”. My advice is simple Mr. Cook: show humility, take responsibility, and act swiftly and collaboratively.

Rest assured there are more activist organizations shaking Apples tree. And what I fear (as Apple should too), is that one day all that shaking will bring that big old tree down.

This week has been all about “R-I-S-K”. Risk that my three flights around the globe to South Africa will be on time. Risk that my luggage will accompany me. Risk that I will meet my driver. Risk that he will be a safe driver, negotiating darkness and harrowing roads full of heavy trucks travelling between Durban and Johannesburg. Risk that my digestive system can handle all the amazing foods I’ll sample while at the NOSA-sponsored NOSHCON 11 conference. Risk that my talk on integrated sustainability management systems will go off without a hitch.

Risk (noun): A situation involving exposure to danger

Risk (verb): to expose to danger or loss

The Setting Tells a Story- “From Stone Age to Hard Won Democracy”

Risk. We all live with risk and all are in position to control and influence its outcome. This week’s conference was devoted to exploring risk in the workplace and its related effects on worker safety, health and environmental impact. South Africa is the perfect place to explore this issue, because of all of the social, political, economic and workplace/environmental challenges that this special country has endured over the generations. Throughout the two-day conference I have become painfully aware of the risks that exist amid the beauty of the KwaZulu Natal and Central Drakensberg region of South Africa.

View from my Guest House Looking Toward Champagne Castle

This great place of beauty has seen wars fought over land and water for thousands of years and countless generations, between indigenous tribes first, then between the Zulu and the Dutch Afrikaners, then the British and Boers and finally blacks and whites through the practice of “apartheid”. This place has seen the likes of King Shaka, Gandhi and Mandela walking its ground. This is historic ground where people took incredible risks to protect what they believed in, and suffered enormous costs and joyous victories. I won’t use this space to opine on that matter just to say that issues run deep and wounds take generations to heal. But all citizens of the Rainbow Nation are trying their very best to level the playing field. But all along the way, all the players in this real life drama have had to manage risk.

Snakes!!

To illustrate how risk is all around us in the workplace and at home, NOSHCON brought out the snakes…yes, snakes. Not the safe variety…I mean the pythons and puff adders. Through a safety company called Unplugged Communications, the idea of “Snakes for Safety” was presented to a fascinated, but somewhat skittish audience of 600. The analogy is that puff adders are like accidents waiting to happen…they hide, camouflaged in the bush and only strike when you are right on top of them. By then the damage has been done, injury’s result (and it the case of the puff adder, you have seven minutes to call a loved one and say goodbye!). Cobras on the other hand represent a hazard that is harmless when small, but if left unchecked, the hazards can grow to an unmanageable point when great harm can occur. Snakes. Risk. Managing the basics of health, safety and the environment (HSE) in developing economies like South Africa is foremost in businesses minds and correctly so.

Risk Management and Meeting Basic HSE Needs First

“There are risks and costs to every program of action. But they are far less than the risk and costs of comfortable inaction”- John F Kennedy

Last year I wrote a two piece series on risk management and accountability in the aftermath of the BP gulf oil spill and Massey coal mining disaster. In the second post on risk, I noted that a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment. Briefly, risk management helps organizations:

Identify critical and non-critical risks

Document each risk in-depth

Log all risks and notify management of their severity

Take action to reduce the likelihood of risks occurring

Reduce the impact on business, life, and the environment

In this post I laid out a typical six-step process to achieve effective risk management and failure mode control. I also noted ”What will be … fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.”

Takeaways from Far Away- Sustainability May Have to Wait

The author with a less venomous snake

My talk focused on integrated management systems and how they can leverage risk and liability and support sustainability in the business marketplace. The audience was attentive to be sure, and I listened and observed NOSHCON delegates listen to several other fantastic presentations on corporate social responsibility, carbon management and sustainability. My impression however is that while there are pockets of excellence in sustainability focused companies, South African businesses are just beginning to think about sustainability as a value-added aspect of their businesses. Perhaps rightly so, many companies in the mining, agricultural and heavy industry sectors continue (especially the majority small to medium-sized and under-resource companies) are focusing on the basic critical issues of life safety in the workplace, education and meeting basic environmental compliance operations first. To meet this pressing need, organizations like NOSA have developed world-class frameworks of occupational, health, safety and environmental risk management. And despite rampant complaints of lax enforcement of labor and environmental protection laws, the South African government has implemented its King III corporate governance policies (similar to the U.S Sarbanes-Oxley provisions) that recognize CSR and reporting obligations.

I am firmly of the belief that companies must take care of these basic HSE issues and lay a firm foundational framework for continual improvement first before they can progress along the sustainability journey. The central themes I heard about how this can be accomplished are through increasing monitoring, education, awareness building, management accountability and trust. Regarding sustainability, it makes little sense force feeding a business approach that has little immediate bearing on managing organizations immediate risks. One must be able to manage the snakes; you know….one by one and step by cautious step.

Be patient South Africa. You have such great resources, professionals hungry to learn, and have fantastic opportunities to excel in the sustainability space in the years ahead. I have been truly blessed and humbled to have been able to participate at NOSHCON and hope to be able to hear of great things coming out of South Africa in the coming years.

Ray Anderson died this week. Most of us in the business just called him “Ray”, because he really was such an approachable guy. I saw him speak in San Diego three years ago, and even to a business green business veteran like me, he was sage-like. To most outside the world of sustainability in business, the name hardly rang a bell. But to those of us within its three concentric circles, Ray was an icon. As many know, Ray Anderson ran InterfaceFLOR. As the leader of a major global carpeting brand, which at that time relied on heavy use of industrial chemicals, hydrocarbon based products, energy and water use, InterFaceFLOR, like other carpet manufacturers was enduring a major challenge to rethink how its products were being made.

By the mid 1990’s when Ray had become the company’s CEO, more customers were asking questions about the company’s sustainability efforts. In 1994, Ray had an awakening of sorts (his so-called “point of a spear into my chest” moment), when after having a number of meetings and discussions with his staff and reading Paul Hawkens the Ecology of Commerce, he became an enlightened, radical industrialist. He had come to the conclusion that the environment was at risk and a lot of that was caused by industry and companies such InterfaceFLOR that were based on petrochemicals and energy.

I, myself, was amazed to learn just how much stuff the earth has to produce through our extraction process to produce a dollar of revenue for our company. When I learned, I was flabbergasted. We are leaving a terrible legacy of poison and diminishment of the environment for our grandchildren’s grandchildren, generations not yet born. Some people have called that intergeneration tyranny, a form of taxation without representation, levied by us on generations yet to be. It’s the wrong thing to do.-Ray Anderson

The Radical Industrialist Takes on the Supply Chain

Ray was simply on a mission- for InterfaceFLOR to not only cut waste, but to be a leading, responsible business. He became the face of the “radical industrialist” (the title of his last autobiographical book which I received signed by him just two months ago is called Confessions of a Radical Industrialist) and in 1994 launched InterfaceFLOR into a first mover role to reduce its environmental and social footprint. The data is quite extraordinary in the 17 years since the company launched its many environmental initiatives. Of course, Ray started with a plan- one that by necessity started small- but was across the board, an overhaul affecting every link of the supply chain. Ray also smartly knew that go get his shareholders on board, he needed “obliterate costs/footprint associated with waste; silencing the shareholders that were uncomfortable with the risk involved with completely revolutionizing your company”.

We began to tackle the face of mountain we identified as waste. We defined waste, by the way, as any cost that we incurred that does not add value to our customer and that translates to doing everything right the first time, every time. It’s not just waste material, scrapped and low quality and so forth. If you send something to the wrong destination and have to get it back and reship it — that’s waste. If you incur a bad debt — that’s waste. So we defined waste very broadly and over time we actually said that any energy that comes from fossil fuel by our definition is waste and we need to eliminate it. We really began to think in different ways about our business in terms of climbing this mountain and it became very clear very quickly this was the smart thing to do. Not only did we start to generate answers for those customers, they embraced us for what we were trying to do. The goodwill in the market place has just been stunning. The rest of the business case is pretty simple. I cost it down not up. – Ray Anderson

According to Lindsay Parnell, InterFaceFLOR’s CEO for Europe, the Middle East, Africa, and Asia, the company has “reduced waste to landfill by 80 per cent since 1996, curbed water use by the same amount, reduced energy use per unit of production by 43 per cent, and cut greenhouse gases 44 per cent, partly by generating 30 per cent of its energy from renewable. But what also stands out (and what made Ray such a business visionary) was that there was a phenomenal financial payback that could be realized from “going green”. According to Parnell, “We could see that the millions of dollars were stacking up. Between 1995 and 2010 we have saved $433m – that is a huge amount for a company with revenues of around $1bn. There is no way we have invested $433m in this, but that is what it has saved.”

It’s not just the right thing to do, it’s the smart thing to do. – Ray Anderson

Climbing Mount Sustainability

Rays efforts were noticed for sure. Time Magazine featured him in an article this past spring and Fortune Magazine called him “America’s greenest CEO”. He went out and “evangelized” over 150 times a year, until his fight with cancer started to finally slow him down. The awards and honors bestowed on Ray and the companies over the past two decades are too many to mention here. Recently, Interface ranked 11th worldwide in the 2010 Sustainability & Innovation Global Executive Study & Research Project by MIT Sloan Management Review and The Boston Consulting Group. They ranked second behind Unilever in the 2011 Global Sustainability Leaders Survey from GlobeScan Inc. and SustainAbility Ltd. Suffice it to say though that InterfaceFLORs efforts disruptively changed the way the carpet, building materials and textile industry operate today as compared to 20 years ago.

Meanwhile, in the last couple of years the company launched its highly ambitious Mission Zero ™ sustainability strategy, which aims to turn InterfaceFLOR into a zero-impact organization. Ray often spoke about how climbing the sustainability mountain in business was akin to climbing Mount Everest and that there were seven paths or fronts to get there:

Eliminate Waste: Eliminating all forms of waste in every area of business;

Redesign Commerce: Creating a new business model that demonstrates and supports the value of sustainability-based commerce;

Making the Business Case

When you are being asked to make the business case for sustainability – perhaps ask them to make the business case for being un-sustainable. – Ray Anderson

You see, for the past 30 years I’ve been evangelizing like Ray for organizations to make “the business case” on behalf of reducing waste of any kind (be it over-consumption, generation of waste, human productivity waste, etc) so the bottom line is optimized and employees, communities and the environment are protected. To me it’s a “no brainer” and for folks like Ray it took an epiphany to make that realization. Since Ray’s awakening in 1994, and especially in the past half decade or so, more CEO’s and manufacturers with local to global reach are coming to their own realizations and drawing their own conclusions.

Ray stepped out of his comfort zone to challenge the status quo. He forged a new business normal that called for a respect of the land, responsible use of resources, smart design and innovative end of life (cradle to cradle) management of products. Mission Zero will continue for the many thousands of employees of InterFaceFLOR around the world- all because of one man’s vision. All because of Ray.

As Ray said back in 2008 when I saw him, “There are noble fortunes to be made in the transition to sustainability.” That inspirational quote stands right up there with my son’s from back in 1991 when he introduced me to his pre-school class as the Dad who “saves the planet”. Sometimes, being radical is not such a bad thing.

Mr. Anderson…er, Ray, thanks for all the inspiration- this one’s for you.

In Part 1 of this series on sustainable procurement, I laid out my vision of the heart of a sustainable, green supply chain that runs through its procurement function. It’s simple to show how every product has a hidden human health, environmental and social impact along the entire supply chain. However, it’s been challenging to bring sustainable procurement into a central decision making role in line with organizational business goals. The results to date have been a mixed bag, as I alluded to when I mentioned Aribas new Vision 2020 report and companion dialoguing process, now underway.

Sustainable Procurement: back to management!

On the heels of the Ariba effort comes a promising benchmark report recently released by HEC-Paris and Ecovadis. Entitled “Sustainable Procurement: back to management!” this study(available for download on Ecovadis’ site)has risen to rescue and tempered my fears of devolving sustainable procurement. In fact, the report may suggest a positive “tipping point” in favor of sustainable procurement. The efforts behind the 2011 edition of the HEC/EcoVadis Sustainable Procurement Benchmark were carried out between the fall of 2010 and early 2011. This benchmarking process started in 2003 and the 5th conducted since that time.

The objective of the benchmark is to provide a snapshot on what’s trending in the area of Sustainable Procurement practices. According to the authors, the following overarching questions were explored:

How has the vision of the Chief Procurement Officers (CPOs) evolved?

What tools and initiatives seem to be the most effective over time to drive changes?

How is Sustainable Procurement progress measured?

What are the remaining challenges faced by most Procurement organizations?

The study identified three main drivers behind Sustainable Procurement initiatives: Risk Management, Value Creation, and Cost Reduction. These findings mirror some of the trending areas and critical issues identified in the Ariba report. HEC and Ecovadis suggested that these three drivers’ shows that many organizations are now facing new expectations in terms of Corporate Social Responsibility and Sustainability from the Procurement Departments of their clients and, suggest that having a sustainable procurement program in place can become a competitive advantage.

Sustainable Procurement Remains High on Executives Agenda

92% of the surveyed Companies consider Sustainable Procurement a “critical” or “important” initiative, even though for the 1st time this year, “Risk Management” took over as a priority initiative.

The major progress made in 2011 is on the support from the Top Management (+24%) thus demonstrating that Sustainable Procurement is attracting more and more interest from Executive Committees, and significant progress was made in implementation of tools and organizational changes.

Significant organizational changes have been implemented: 45% of companies already have “dedicated teams” and 57% report having trained a majority of procurement staff on Sustainability.

Whereas in 2007 only 1/3 of companies were using formalized methodologies for assessing their suppliers’ sustainability performance, in 2011 two-thirds of them are now implementing dedicated tools (either internal or leveraging 3rd parties).

Finally 92% companies have increased (56%) or maintained (36%) their budgets related to Sustainable Procurement, which should yield more changes in the future years.

Tools for Sustainable Procurement on the Rise

The HEC/Ecovadis study found that basic tools such as “Suppliers Code of Conduct” , “CSR contract clauses” and “Suppliers self-assessment“ were now the rule rather than the exception among companies surveyed by a ratio of 2 to 1, but interestingly were still found to limited value in terms of risk management. What I found encouraging was that the study found maturation in the types of tools used, including “Supplier Audits” and “Supplier CSR information databases“. This type of work has clearly been evident in what I have reported in the past, especially among multi-national companies with contractor manufacturing operations in developing economies (like China, India and Brazil). These advanced tools offered more opportunities for suppliers to engage directly with buyers, allow for data verification, and offer direct recommendations for supplier CSR and sustainability improvement. Over half of the companies surveyed had advanced to this next level. Finally, when asked what the most effective uses of resources were in developing a Sustainable Procurement Program, respondents mentioned 1) top level support, 2) creation of cross functional teams and 3) training, as key success ingredients. All three of these success factors had shown substantial improvement over the past several benchmark cycles, according to the study.

Sustainable Procurement Creates Value

This is not the first study that has come along that demonstrates value and return on investment from sustainable procurement. I wrote earlier of a joint study by Ecovadis, INSEAD and PriceWaterhouseCoopers that demonstrated similar results. In that study, payback from most green procurement activities was huge. Companies surveyed were able to benefit quickly from risk management reduction and potential revenue growth opportunities, due in part to sustainable procurement. The study also found that there were additional ‘value creation’ opportunities that could be realized if procurement departments collaborated more closely with the marketing and R&D departments upstream on the projects.

Also, a study in 2009 by a company named BrainNet (Green and Sustainable Procurement: Drivers and Approaches”) looked at sustainable procurement and value creation and found that “… procurement with an ecological and social conscience is not a cost factor, but a value factor…Companies that pursue a consistent approach to green and sustainable procurement receive an above-average return on capital deployed.” The study produced what they describe as an “evolution curve for sustainable procurement” that describes the maturity of various approaches of sustainable procurement. This curve compares well with the most recent EcoVadis/HEC findings and suggests that there may be a widening gap between leaders and laggards.

Sustainable ‘green’ procurement embraces a holistic approach, one that encompasses organization, people, process, and technology to create greater product value along the entire supply chain. This type of value creation can managed by establishing firm triple bottom line based metrics from upstream suppliers to downstream users and using the procurement function to support product and process innovation and accounting for total cost of ownership (TCO).

What’s Next?

According to the most recent HEC/EcoVadis benchmark report, it is clear that new green and social business models depend upon innovation, and a gap still among many organizations to implement a truly Sustainable Procurement vision. This was clearly in evidence by the lack of mentions by Chief Procurement Officers that I discussed last week in the Ariba study.

The HEC/Ecovadis report suggests that when implementing Sustainable Procurement practices, a three phase process can get the ball rolling, starting first by orienting and energizing the procurement function through:

“1. Communication activities: Building awareness among employees regarding the approaching change, the benefits and the steps to be implemented.

2. Training and Performance support: ensuring that the initiative is being understood among those who are to execute the change or be part of it, and leading to buy-in of the key stakeholders.

3. Rewards and recognition: ensuring that employees – and suppliers – who embrace change are properly recognized and rewarded. This final step is when implementation is not only measured, but also celebrated.”

I’m going to say it again…and again. All sustainable business roads lead through the procurement function. The procurement function is the perfect nexus and a critical organizational player that touches product designers, engineers, multiple tiers of suppliers and subcontractors, manufacturing operations, logistical warehousing and distribution and the end users. Yes indeed, things are looking up for sustainable procurement…it’s ‘game on’.